Write off an uncollectible receivable by crediting the customer balance and debiting bad-debt expense or an existing loss allowance, as appropriate under the applicable accounting framework. Identify the precise invoices and obtain the supported approval. A write-off removes the accounting asset; it should not create a fictitious customer payment or sales return.
Establish why the balance is uncollectible
Review collection history, customer correspondence, disputes, insolvency information and any settlement agreement. An overdue balance is a signal for assessment, not automatic proof that the entire amount must be written off.
Separate collection failure from an invoicing error. If goods were never supplied or an invoice was duplicated, the correction may belong to revenue and customer records rather than bad-debt expense. If the customer has a valid return claim, follow that underlying event.
Keep commercial and accounting decisions clear. A business may stop active collection because the expected recovery is too small relative to its cost, but the write-off working should explain the amount and rationale rather than simply state “old balance.”
Illustrative direct write-off
A Jodhpur wholesaler has a customer receivable of ₹23,600 relating to a genuine completed sale. After documented assessment, management approves writing off the full balance. Assume no loss allowance was previously recognised for it.
| Account | Debit ₹ | Credit ₹ |
|---|---|---|
| Bad-debt expense | 23,600 | — |
| Customer receivable | — | 23,600 |
| Total | 23,600 | 23,600 |
The customer ledger closes for those invoices. Bank does not appear because no money was received. Sales is not debited merely because collection failed after a valid sale.
The amount written off is the supported gross receivable in this example. Any separate tax adjustment requires its own legal basis and evidence; it is not assumed in the journal.
Use an existing allowance correctly
If the same ₹23,600 receivable was already fully covered by a recognised allowance, the write-off may debit that allowance and credit the receivable. Charging expense again would duplicate the loss already recognised.
Where the allowance covers only part of the amount, assess the remaining required charge under the applicable framework. Do not clear an unrelated allowance simply because it has a convenient credit balance.
Maintain an allowance roll-forward showing opening amount, additional recognition, write-offs and reversals. The customer-level assessment should connect to the allowance movement so reviewers can distinguish new loss from use of an earlier estimate.
Allocation matters when customers have several invoices
A customer may owe ₹1,00,000 while only one disputed or irrecoverable invoice of ₹23,600 is approved for write-off. Apply the credit to that specific item and leave other collectible invoices open.
Do not spread the write-off across newer invoices merely to improve the ageing report. The remaining balance should preserve its actual invoice dates and payment history.
Check unallocated receipts and credit notes before concluding the amount is unpaid. A customer can appear delinquent because a genuine payment was posted to another ledger or left in a clearing account.
GST does not follow the expense journal automatically
The accounting conclusion that a debtor will not pay does not itself establish a reduction of GST liability. Section 34 of the CGST Act addresses specified credit-note situations; a bad-debt journal is not automatically a qualifying tax credit note.
Review whether the facts involve an actual value adjustment, return, deficiency or another legally supported event. Do not issue a fictional sales-return document solely to recover tax on a collection loss.
Where the original receivable included GST, retain a separate tax assessment with the write-off. The general-ledger expense and the tax return may require different treatment, and the journal should not conceal that distinction.
Accounting and income-tax treatment are separate
A book write-off is not a guarantee of an income-tax deduction. The applicable law, nature of the debt, earlier recognition and other relevant conditions need their own review for the actual period.
Keep the approval and evidence detailed enough to support that review, but do not label the expense “tax deductible” simply because the customer account was credited. The accounting entry should first reflect the supported financial position.
A compromise settlement can also contain components other than bad debt, such as an agreed price concession or disputed charge. Classify those components according to their substance rather than using one write-off account for everything.
Preserve a recovery trail
Keep a memorandum record of written-off invoices, amounts, approval date and legal collection status. The accounting write-off does not by itself determine whether contractual rights have been waived or legal action should stop.
If money is recovered later, the original references allow a distinct recovery entry. Without that trail, the bank credit may be mistakenly treated as a new sale or an unidentified receipt.
Restrict write-off approval appropriately. A person responsible for collection should not be able to hide unauthorised discounts or missing receipts by clearing customer balances without review.
Review the result after posting
Confirm the receivable control account agrees with the customer subledger, the allowance was used only where appropriate and the targeted invoices are closed once. Review any remaining customer credit or debit balances.
Distinguish gross exposure from security held
A customer debt may be supported by a deposit, guarantee or another recovery route. Assess those rights before approving the write-off amount, while recognising that expected recovery is not automatically certain.
If an enforceable deposit is validly applied against the debt, record the supported set-off separately. Do not write off the gross invoice and leave the related customer deposit untouched without considering the combined position.
A sound write-off entry removes an unsupported asset while preserving the evidence of how the business reached that conclusion. It also leaves future recoveries, tax review and customer history understandable.